UBS fined $11.55m by Hong Kong SFC for compliance issues due to legacy systems

Rick Steves

The Swiss bank has had troubles with financial watchdogs as of late.

Hong Kong’s financial watchdog has fined UBS AG and UBS Securities Asia $9.8 million and $1.75 million respectively over various regulatory breaches.

The Securities and Futures Commission (SFC) has reprimanded and fined the Swiss bank’s entities following a number of issues concerning UBS’s systems and controls between September 2018 and November 2020 by self-reports from UBS or referrals of findings from the Hong Kong Monetary Authority (HKMA).

Between May 2004 and May 2018, UBS failed to make proper disclosure of its financial interests in some Hong Kong-listed companies covered in its research reports, according to the investigation.

The compliance issues were caused by multiple data feed logic errors in a legacy data source used by UBS for tracking its shareholding positions.

In addition, UBS AG failed to:
– obtain valid standing authorities from 91 clients who were not qualified as professional investors and issue contract notes to them between November 2012 and February 2019 in respect of 913 securities pooled lending transactions entered into with these clients;
– record client order instructions received through 35 telephone lines between August 2017 and June 2019, involving over 2,000 transactions executed for more than 400 clients;
– follow applicable regulatory guidelines relating to the assessment of clients’ derivatives knowledge between January 2018 and June 2020 by failing to obtain trading evidence from clients who declared that they had conducted five or more derivative trades in the three years before declaration;
– disclose to 15 clients the “stop-loss event” feature of a structured note issued by an issuer, and assure itself that the clients understood the risks associated with that feature before selling them the note between October 2017 and February 2020.

For failing to act with due skill and care and put in place adequate systems and controls to ensure compliance, the agency has decided to sanction the bank despite UBS’s remedial actions and offer to compensate the clients affected by its failure to disclose the “stop-loss event” feature of the structured note.

UBS has agreed to engage an independent reviewer to review the effectiveness and adequacy of its remedial measures taken in relation to its telephone recording failures and fully cooperated with Hong Kong’s regulator in resolving the compliance concerns.

Nevertheless, UBS was unable to prevent the fine totaling $11.55 million, when taking into account both entities.

UBS AG is registered to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance), Type 7 (providing automated trading services), and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (SFO).

UBS Securities Asia is licensed to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 4 (advising on securities) regulated activities under the SFO.

The Swiss bank has had troubles with financial watchdogs across the globe as of late. In July, UBS paid $8 million to settle an SEC complaint for compliance failures in a volatility-linked ETP.

In May, UBS was fined €172 million for participating in a cartel on government bonds between 2007 and 2011. The European Commission also fined Nomura nearly €130 million and UniCredit will have to pay €69 million.

Bank of America, Natixis, RBS (now NatWest), and WestLB (now Portigon) were also found guilty but escaped the fines.

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